There’s a lot of debate and – perhaps justifiably – a lot of desperation in the private business sector about the fortunes of the Greek economy. Regardless of each one’s political and emotional views on the matter, I think we will all be better off if we spend less time hoping that the government will magically fix the broken Greek state and a bit more time thinking what we can practically do to help our business survive in our predicament. Many will not survive but they will fail more gracefully if they at least make an effort to change in the face of this crisis. And those that will succeed will emerge stronger if they grab the opportunities that are also part of the crisis.
Without the pretense that this is a “survival guide” of any sort, I’m posting here some ideas for reacting and adapting to our current economic circumstances. The questions I’m trying to answer are “how can I stay alive?” and “is there a way I can actually benefit from the situation?” The answers will vary for each particular business, but the following topics are good starting points for figuring out the answer for your own business.
Banks are in trouble. Many of their debtors (including the Greek state who sold them a ton of junk bonds, other businesses who will default and individuals who can’t pay their loans) will not be paying them very soon, if ever. They will not be able to give you credit as easily or as cheaply as they did before, even if you are a healthy business.
This is the biggest danger you’re facing and it is how most businesses will fail. Even if your sales are healthy, cash flow can kill you. Reducing reliance on credit and paying off existing debt is perhaps the most potent way to improve your odds of survival. It may need sacrifices, negotiating new credit and cash flow terms with clients and suppliers, operational changes or altogether abandoning lines of business that work on large credit cycles.
On the positive side, this is an opportunity to create a more resilient financing and cash flow model, which will probably be a huge competitive advantage in an economy that will be troubled for years to come.
Your clients will be in trouble. Some of them will default or be unable to pay you anytime soon. Even if they don’t die, you will probably be affected by their own budget cuts.
You need to review your revenue expectations with this in mind. Balance your budget with worst-case assumptions on future sales and payments of existing sales. And cut down your costs to fit these revenue expectations. Start thinking of ways to replace risky revenue sources with more reliable ones. Perhaps the best source of revenue you can seek is customers outside Greece that are not affected by the local crisis. In the Greek market you want to focus on healthy business customers (e.g. healthy cash flow and a product that will continue to sell to an impoverished market) or resilient consumer segments (the very rich, the very poor or the ones that need your product to survive).
Stay away from state-funded revenue sources, including non-state clients that rely heavily on the public sector money pump. Assume that the demand for non-essential products will drop and that you will lose market share to cheaper competitors or substitute products. This brings us to the next idea in our discussion, which is adjusting to the changes in the market.
The market in a period of financial trouble does not just shrink. The change is a primarily a structural one, as consumers and businesses are forced to make fundamental changes in their buying behavior and the way they seek to satisfy each need they have. This is an opportunity for those who can quickly adjust to the new demand structure, so it’s vital to think hard about what’s going to happen in your sector and anticipate the changes.
Business defaults, budget cuts and reduced family income are going to shape the new structure. Businesses and consumers will reduce spending on everything that is not critical to their immediate survival so you will have to adjust your expectations to those few, healthy clients that need your product.
Those who can still spend money on your product will have more leverage in the market and they will be more budget-conscious, so you need to find ways to be more competitive in price.
Some of them will buy a completely different product that satisfies the same need in a different way, (e.g. renting a DVD instead of going to a nightclub) so look for ways to modify, position and advertise your product as a substitute of something else that is more expensive.
So one way to stay competitive is to reduce your cost of production, thereby improving your ability to retain share in a shrinking market and your ability to capture new segments for product substitutes or cheaper alternatives.
This is the time for you to stake out a better territory right where the market is going to move. And if you think about it, in our current situation it is not too hard to predict how consumers will behave. Think of what your customers will actually be able to afford tomorrow and start building it before your competitors do. If you can move fast, you may actually benefit from the crisis.
Changes in the business ecosystem
Think of the dependencies and relationships you have with other members of your business ecosystem. These are your suppliers, your distributors, your partners, and your competitors. (and the banks, but we talked about them above) They are also the businesses that sell complementary products. (i.e. products that people buy together with your product) Your fortunes are tied with theirs and many of them will be in trouble.
Do you have a Plan B in case an important supplier defaults? Can you get better prices by offering better payment terms to a supplier that is struggling with cash flow? Is a struggling competitor opening up an opportunity to steal market share? Who will be your new competitors in the new market that is shaping up, and what can you learn about them before you have to face them? Are you vulnerable to lose business due to public unrest, outages in public services, elimination of distributors, etc? There is no recipe here because each business ecosystem is very different. But if you spend some time to think what can happen that will affect you, you stand a better chance to be prepared for it.
Rallying the troops
A company and its employees always have a strong alignment of fortunes and goals, but the crisis makes that alignment even more pronounced. Your employees need you now more than ever. Their family income is less certain (family members facing unemployment, reduced pensions, etc) and their alternative employment options are getting very thin. This is a time to stand by and reassure your staff, but to do this you need to show them that you are realistic and have a clear plan on how to survive. This is an opportunity to rally everyone around a common cause, and make everyone conscious about the need for efficiency, creativity and sacrifices. A cost-cutting effort can spread panic to employees if done carelessly, but it can also be seen as a sign of prudence by employees who understand what is at stake and that “we’re in this together”. Companies who become safe havens in a time of crisis by prudent management are going to be seen as good employers for years to come and they will find it easier to attract the best people in the labor market.
Unemployment is and will be at horrible levels, which means that job seekers in the market include some really talented people who are out of job despite their skills. This includes experienced people from similar companies that faced financial troubles or graduates from top schools that would otherwise join the more prestigious companies, and all of them are willing to do their best to get a job at a stable company. If you have managed to steer clear of immediate danger, this is possibly the best time to make a few good hires, or to find highly skilled people willing to do some freelance/contractor work for you.
The economic crisis is not the end of the world. A reshaped economy will gradually emerge out of the rabble and the most resilient companies can gain a lot in the process if they play their cards right. If your bring your finances in control this gives you tremendous leverage in a market where stability, cash in hand, timely payments, job security and track record for survival are going to be valued highly. Negotiate better prices from companies in need of your business. Snatch business from faltering competitors. Get the best people from shaky or failed companies. Use the circumstances as an opportunity to review and improve your business, open up to foreign markets, drop products that are no longer viable. Remember that so long as you can survive the storm, you will probably have many opportunities to come out stronger. You just won’t be able to do this with “business as usual”.